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Public sector unaware of risks

By Dimitris Kontogiannis

The deliberations of Greek political leaders over the formation of a new government may or may not bear fruit. However, things would have perhaps been much different today if a good chunk of the population had understood the risks involved in the kind of shock their counterparts in other countries under IMF austerity programs have felt.

Analysts have long argued that the vast majority of the Greeks vote and behave as if the country?s position in the eurozone is not at risk. This complacency, in combination with the economic and social pain caused by the austerity policies, have changed the political landscape after the lashing received at the polls by two major parties that have dominated politics in the last few decades.

History tells us that the deleveraging process in debt-ridden countries is usually long and painful. The combination of poor implementation and bad designing that characterized the first EU/IMF economic adjustment program made things even tougher for Greece. Precious time was wasted and the expected social fatigue set in with little light visible at the end of the tunnel.

We are not going to touch upon the issue of austerity but rather concentrate on the complacency issue. This has probably arisen because repeated public warnings and threats about a potential cutoff in EU/IMF financing of the public sector have not materialized.

?You warned us in the past (about the risk of salaries and pensions not being fully paid) but nothing happened. Come on, the same will happen now. They will find a solution in the end,? said a pensioner, capturing, we believe, the general mood.

Of course, it would be wonderful if all issues were settled and international creditors resumed funding the public sector, even though this reinforces complacency. However, if this is not the case, the only way to make people realize what is at stake is to make them feel the consequences -- at least in part.

This is especially so in the public sector where many employees understandably complain about pay cuts but are reportedly discouraged from working harder because they assume they will always be paid on time and will not lose their jobs. This may explain their voting pattern as some pollsters claim public sector employees, many of whom have been loyal to the socialist PASOK party in the past, migrated to the Coalition of the Radical Left (SYRIZA) in the recent elections.

Just to give some perspective on the breakdown of the Greek labor force and relative employment in the public and private sectors, one should note that the labor force accounts for 4.8 million people. About 1 million people are unemployed according to the Hellenic Statistical Authority (ELSTAT) with the bulk coming from the private sector of the economy as civil servants and others enjoy tenure.

Civil servants number about 700,000, while about 1 million people are employed in the public sector as a whole, including in utilities, local government etc. Just for comparison?s sake, the public sector employed around 500,000 people in 1981-1982.

In other words, 2.8 million employees in the private sector finance the economy with their direct and indirect taxes, and social security contributions. This includes a part of the salaries and pensions for the public sector in the ?pay as you go? social security system since total tax revenues amount to about 50 billion euros, which is roughly equal to the expenditures for wages and pensions in the public sector. Social security contributions are estimated at around 20 billion euros.

Out of the 2.8 million employees in the private sector, hundreds of thousands are not being paid on time, with over 400,000 being paid with at least a three-month delay. Needless to say, most of them have had their salaries reduced in the past two years. Moreover, efforts to scale down the work force in the public sector via a much advertised labor reserve scheme in the local press turned out to be fruitless since only a few thousand employees close to retirement participated. So, contrary to public sector employees who are accustomed to being paid on time, their peers in the private sector are fully aware of the costs and the consequences when funding is cut off.

Analysts agree that the only way to make the public sector and even some pensioners stop being complacent is to have them understand the risks of a Greek euro exit. This will happen when they see their bank accounts not being credited for the full amount.

Some analysts argue that an opportunity to drive this message home was lost last autumn, when the EU/IMF loan installment due to be paid in September 2011 was finally paid in December. The state relied on revenues in excess of 900 million from the sale of a license for VLTs and a time extension of the gaming monopoly of state-controlled OPAP, further squeezing suppliers and others in the private sector by building arrears so that it could pay civil servants? wages on time.

According to the same analysts, the same message can be sent in the next few weeks if the political stalemate continues. Although Greece has enough cash to pay salaries and pensions by the end of June, a delay in disbursements could make it impossible in July. Of course, there is the argument that this could be counterproductive because it may cause panic and lead to a deposit flight. However, delays in the payment of hundreds of thousands of private sector employees have not had the same effect on bank deposits so far. Moreover, this may prove beneficial if it helps people realize how big the risks of a euro exit are.

All in all, these analysts may be right in pointing out that a temporary shock may be needed to make many Greeks, especially in the public sector, realize that EU/IMF funding is not guaranteed. It would be better, of course, if all of this could be avoided but that would require unusual political boldness.